The Great Unknown The FHA 203 k Home Rehab Loan

Author : Chris EspositoFHA insured loans have spiraled upward in popularity with the demise of the sub-prime mortgage market So, how is it that the FHA 203(k) program is still a hidden gem - still a great unknown? It is by far the most liquid, most flexible, most useful home rehab loan on the market Here are the basics every potential homeowner needs to know right away

1 Down Payment for the FHA 203(k) Home Rehab Loan Program:

One of the best features of the FHA 203(k) program is that it is very liberal in its guidelines compared to conventional home improvement loans available today Whereas most programs want 10% or 20% for a down payment, the FHA 203(k) insured loan requires only a 3 5% down payment

This small down payment may still be a little tough for first time homebuyers So, the FHA 203(k) program has found a way to make things even easier Borrowers can actually have family members pay the down payment for them!

So, what about the closing costs? The good news here is that this home rehab loan will even allow the seller of the home to pay up to 6% of the purchase price in order to cover all closing costs Therefore, a borrower can have a family member pay the 3 5% down payment and the seller pay all the closing costs In other words, the borrower could buy and renovate a home with none of their own cash out of pocket

2 Credit Requirements for the FHA 203(k) Home Rehab Loan Program:

As lenders around the country have tightened their belts in an effort to survive the current market downturn, they have all increased their requirements for a borrower’s credit score During the heyday of sub-prime lending, a borrower could have credit scores around 500 Nowadays, lenders want credit scores at 680, or 700, or even 740 in some cases

However, the FHA 203(k) does not have any specific requirements for a particular credit score One of the interesting things about this program is that it is a federally insured loan, meaning the government doesn’t actually lend the money but instead insures the mortgage for specific, approved lenders

What does this mean for your credit score requirements for an FHA home rehab loan? Even though there is no specific score cutoff set down from the government program, almost all lenders who use the program have set the bar at the old standard of 620 That’s a much more liberal requirement as compared to the credit score cutoffs from conventional programs This means that the FHA 203(k) program is available to a much broader range of potential homebuyers and renovators

3 Income Requirements for the FHA 203(k) Home Rehab Loan Program:

Like most loan programs today, this home renovation loan requires fully documented income, meaning you will have to provide pay stubs, W2 documents, 1099 documents, tax returns, or whatever you have to prove you earn what you claim on your application

This income is then compared to your monthly payments Like most loans, your new loan’s monthly payment can only be a small percentage of your gross monthly income (maximum of 31%) Likewise, your total monthly payments, including your new home loan plus the monthly payments showing on your credit report, should not exceed 43% of your gross monthly income

These debt-to-income ratios are pretty much inline with other loans around the nation The FHA 203(k) program actually gets a little more liberal, though In most cases, a borrower an stretch these maximum if they have other compensating factors in their file, such as a very strong credit score or a lot of savings in the bank

4 Savings Requirements for the FHA 203(k) Home Rehab Loan Program:

In mortgage terms, the amount of savings you have in the bank is known as reserves And, reserves are just one more way that the FHA 203(k) program is setting itself apart from conventional loans For rehab loans or construction loans, it’s typical for a bank to require that you have at least 2 months of payments leftover in your savings Sometimes, they will want to see 6 months or more However, the FHA home rehab loan has no requirement at all for reserves, making it a very liberal lending program indeed!

5 Where to Find the FHA 203(k) Home Rehab Loan Program:

Okay, so if the FHA 203(k) program is so liberal and potentially helpful to so many people who want to fix up a home, then why is it still a hidden gem in the mortgage world? The reason for this is that only a small portion of lenders around the nation are approved to provide FHA insured loans And, only a few of these select lenders are qualified to provide the specific FHA 203(k) program

Most of the lenders are satisfied working with the typical FHA loan for purchases or refinances Only a select few are qualified and approved to lend money for the 203(k) program for home rehab loans They are more complicated, involved loans, because they require review and underwriting of the property itself as well as the proposed renovations and repairs There just aren’t many lenders who know how to handle this type of program, which makes it the great unknown

It is no secret that home renovations are going to be vital to the recovery of the housing market, which means more and more borrowers are going to need a quality home rehab loan program such as the FHA 203(k) If you find yourself in this situation, you may not be able to find a lender locally For such a specialized program, your best bet may be to search for a national lender online who can meet your needs You want to make sure you deal with a lender who specializes in home rehab loans and understands the FHA 203(k) program Chris Esposito specializes in home rehab loans through his company CM Direct, Inc. If you are interested in learning more about the FHA 203(k) program, or want more info about home rehab loans in general, go to http://www.DirectRehabLoans.com, or call (877) 876-3688.

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